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Steady revenue quarter; realization risk persists

Apollo Hospitals ARPOB continue to gain traction with 14% increase on a blended basis in 9m FY22; a look at the ARPOB increase within some of the clusters (accounting for ~40% of cumulative operating beds) shows even faster increase on a 2-year CAGR basis at 15-19% (without international traffic in 9m FY22 carrying better embedded realization in the historical base). This shows the impact of mix change in the hospitals business over last 18 months as footfalls would have been volatile given the episodic impact of pandemic. While customer acquisition cost in the 24x7 business is likely to stay in a range in the near term, continued intensity in the online model would entail likely higher discounts. Capex of Rs15bn shows the need to augment volume growth as ARPOB can only drive so much, albeit no near term impact is seen in our forecast horizon. Retain SELL with unchanged multiple and TP Rs3,050.

Result Highlights

Revenues up 32% YoY at Rs 36,389mn, higher than our estimates of 28% growth YoY on a favourable base of Q3 last year though down 2% QoQ

Healthcare (hospitals) grew at 40% YoY and Clinics revenue grew at 59% YoY; 6% QoQ decline in hospitals revenues

Gross margins flat QoQ but higher by 375bps at 49.9%

EBITDA margins were down 41bps QoQ but higher by 200bps YoY at 16.1%.

Valuations

Capex of Rs15bn shows the need to augment volume growth as ARPOB can only drive so much, albeit no near term impact is seen in our forecast horizon. Retain SELL with unchanged multiple and TP Rs3,050.

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